The primary purpose of this blog (Prithviraj Kothari - MD, RSBL | Bullion market blog) is to educate the masses of the current happenings in the Bullion world.
This blog contains my opinion, which is not to be construed as investment advices.
Information provided in these blogs is intended solely for informative purposes and is obtained from sources believed to be reliable

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Tuesday, 19 September 2017

In 2016, gold was seen climbing 6% from $1050 to $1150 and another 10% gain during the first half of this year, in July and again in early August, gold prices dropped down to $1210, before rallying back up both times to $1290 and $1350 per ounce respectively. This back and forth price action has some investors worried if this is a real bull market in gold or yet another flash in the pan for the coveted yellow metal?

Reasons being more than one, Investors arereturning to gold again to prudently diversify their stock-heavy portfolios. That’s very bullish for gold, as investment capital inflows can persist for months or even years. This shift is most evident in the yellow metal.

There are a couple of issues pushing and pulling at the market. The reaction to the missile launch last week has been a bit negated by that better-than-expected (US) inflation number.

Spot gold slipped on Friday, shrugging off North Korea's latest missile launch over Japan, with strong US inflation data raising the spectre of another interest rate hike.

Let’s have a look as to how each factor was responsiblefor this wave like movement in gold prices.

North Korea - North Korea fired a missile on Friday that flew over Japan's northern island of Hokkaido far out into the Pacific Ocean, South Korean and Japanese officials said, further ratcheting up tensions after Pyongyang's recent test of a powerful nuclear bomb.

US Data - Geopolitical risks can boost demand for safe-haven assets such as gold and the Japanese yen. The yen slipped against the dollar on Friday, after earlier having risen on the news, with the greenback supported by strong US consumer inflation data.

Gold pared losses after data on Friday showed U.S. retail sales unexpectedly fell in August and industrial output dropped for the first time since January due to the impact of Hurricane Harvey.
Friday's numbers were in contrast to strong U.S. inflation data on Thursday which increased prospects of an interest rate hike in December.The Fed's next monetary policy meeting begins on Sept. 19 and now the marketis increasingly focusing on the Federal Reserve and its probability of another rate hike this year.

The Fed has a 2 per cent inflation target, and a series of subdued inflation readings have dampened expectations for further rate rises in the near term. Firming inflation could support the case for another rate hike. Interest rates tend to boost the dollar and push bond yields up, putting pressure on gold.

ECB - Gold fell on Friday after a European Central Bank official called for scaling back the bank's stimulus programme; although losses were capped when weaker than expected U.S. economic data raised questions about further rate hikes.

ECB board member Sabine Lautenschlaeger made the most explicit call so far from an ECB policymaker for paring the bank's 2.3 trillion euros money-printing programme.

Data showing that euro zone wages grew at their fastest rate in two years in the second quarter bolstered the case for reining in ECB stimulus.

This was rather a bad news for gold because this continues the trend of the market pricing in the normalization of monetary policy.

But he said there had already been plenty of headlines about the ECB planning an exit from its bond buying and the U.S. Federal Reserve reducing its balance sheet after its big quantitative easing programme.

Those "normalisation" actions by central banks tend to drive rates higher, push bond yields up and put pressure on gold, a non-yielding asset.

Summing it up, though the previous week saw gold moving like a see saw; the focus now shifts to the important FOMC meet due on 19th September. Wait, Watch and then Work would be the only trading tip for the time being.

Tuesday, 12 September 2017

We have seen gold nearing a 1 year high over the past few months. But what has supported this rally for the yellow metal?

Lately, uncertainty in many forms has played a key role. This past week's nuclear test in North Korea shook investors, sending them fleeing to safe-haven investments such as gold. In addition, uncertainties over Congress's ability to pass corporate tax reforms, which are being counted on to boost U.S. GDP growth, have some pundits favouring gold relative to stock-based equities.

Last Friday, the spot gold price was trading at $1,352.50/1,352.90 per oz, up $5.2 from the previous trading day’s close.

Gold prices were well-bid on Friday September 8 as weaker-than-expected US economic data and the ECB’s decision to leave interest rates unchanged, as well as continued geopolitical risks, maintained pressure on the dollar.

Let’s take c closer look at all the influences-

US Dollar-Uncertainty and lower-than-expected inflation rates have been doing a number on the U.S. dollar. In recent weeks, the dollar hit multiyear lows against the euro and at least one-year lows against a handful of other major currencies.

In recent months the dollar has suffered from multiple issues forcing it lower against other major currencies, including political failures, multiple climate-related disasters, geopolitical tensions and weak inflation in the US.

The latter, in particular, has made it more difficult for the Federal Reserve’s Federal Open Market Committee (FOMC) to justify hiking interest rates

The dollar index on Friday morning was down 0.08 to 91.45. Overnight US jobless claims surged to a two-year high because of Hurricane Harvey, which raised doubts over further US interest rate hikes in December.

The dollar and gold usually move in opposite directions, meaning the dollar's weakness has been a green light for gold investors.

ECB Meet- ECB policymakers indicated at their meeting overnight that the European central bank was not intending to weaken the common European currency, which is expected to support euro performance in the short-term. The ECB maintained rates and upgraded its growth forecast this year by 0.3ppt to 2.2%, but maintained its 2018-19 forecasts.

Hurricane- Meanwhile gold prices jumped today morning as an earthquake off the coast of Mexico added to the hurricane damage in the Caribbean and US east coast in driving demand for the traditional safe haven.

U.S Data- The tally was the highest level for initial claims since April 18, 2015, when it was also 298,000, the government said.

Consensus expectations compiled by various news organizations called for initial claims to be around 241,000 to 242,000. The government left the prior week’s tally at the previously reported 236,000.

Gold prices rose after a Labor Department report Thursday showing that initial weekly U.S. jobless claims surged by 62,000 to a seasonally adjusted 298,000, with the government citing the impact of Hurricane Harvey.

Geopolitical tensions- Geopolitical risks also remain at front of mind, with the USA pushing hard for additional sanctions against North Korea. This kept safe-haven buying relatively strong

Persistent North Korean tensions and general US dollar weakness propelled gold $15 higher to new 2017 highs overnight, touching $1,249.98 and closing just below at $1,249.50.

Geopolitical events have boosted precious metals prices. Gold prices continue to push higher, underpinned by geopolitical concerns over North Korea. For any further escalation in the on-going tensions, gold is likely to remain in demand.

FOMC Meet and Interest Rate Hike-A combination of stubbornly low core inflation and rising doubts about the Trump administration’s ability to pass new legislation has been underpinning the situation.

Specifically, the failure of high asset prices and strong labour market growth to pass through into underlying inflation is bringing into question how much further the FOMC will be able to lift rates in the near term. While the healthcare bill fiasco and lack of detail around both tax reform and infrastructure spending have underlined the difficulty of turning rhetoric into reality when it comes to shifting growth onto a higher structural path. In consequence, markets have been remarkably sanguine about the FOMC’s anticipated announcement of balance sheet reduction at their September 20th meeting and are now only pricing 25% chance of another hike by year-end.

Prices are closing in on last year’s highs so some nervous profit-taking may emerge, leading to choppy trading, but the combination of North Korea, a weak dollar and low treasury yields are all supportive. Silver and platinum may well follow gold, but palladium prices that are already elevated, may struggle more.

Although this combination of factors clearly presents a constructive cyclical backdrop for gold prices, the extent of the recent rally has surpassed what can be explained by just US rates and the weak dollar.

Thursday, 24 August 2017

The week began on a silent note for precious metals. Gold was up +0.1% which probably reflects a lull in the haven demand as investors appear risk-on at the beginning of the week. It was strange to see that demand for the yellow metal wasn’t much despite of the on-going geopolitical tensions.

OVER THE WEEKEND, North Korean leader Kim Jong-un warned of a second “Korean War” as US- South Korea military exercises, viewed as “reckless behavior” by the North Korean leader. But reactions in the market were contradictory as the market layers stayed calm. Hence the news which could have had strongly pushed gold prices further proved to be non-influential for gold.

After a firm price movement on Monday, precious metals were more or less stable on Tuesday morns. Spot gold prices were down by 0.2% at $1287.90.

On Wednesday, Gold prices edged slightly higher after news that sales of new U.S. single-family homes fell by 9.4% in July to a seasonally adjusted and annualized pace of 571,000, which was below forecasts.

Consensus estimates compiled by various news organizations called for sales to be around 610,000 to 620,000. The Commerce Department revised sales for June upward to 630,000 from the originally reported 610,000.

Apart from the geo political tension, the focus now shifts on host of global economic data that will be released throughout the week

Monday, 13 February 2017

While when gold was just about to continue to maintain its 3 month high last week, there was a sudden pull back and gold prices moved lower by the end of the week.

Gold steadied on Friday, but remained below the week's three-month top as the U.S. dollar and Treasury yields came off their highs after the currency initially jumped on U.S. President Donald Trump's promise of a major tax announcement.

Gold was being pushed and pulled amidst various factors that played key roles in influencing gold prices-

Interest Rate - Gold slid on Thursday from a three-month high in the previous session after strong U.S. economic data pointed to a robust economy, increasing the possibility that the Federal Reserve will raise U.S. interest rates.
U.S. economic data has also strengthened talk that the Federal Reserve would press ahead with U.S. interest rate hikes sooner rather than later.
Gold is highly sensitive to rising U.S. interest rates which increases the opportunity cost of holding non-yielding bullion while boosting the dollar in which it is priced.

Dollar and Data - U.S. economic data also underpinned the dollar. Initial jobless claims unexpectedly dropped last week to a nearly 43-year low, while inventories at wholesalers surged in December for a second straight month. U.S. import prices rose more than expected in January.
The data showing rising U.S. wholesale inventories and an unexpectedly low number of Americans filing for unemployment benefits further pushed up the dollar and U.S. bond yields.
A stronger dollar makes gold more expensive for holders of other currencies, while higher yields increase the opportunity cost of holding non-yielding bullion. Higher interest rates would lift yields further.

Tax Announcement - Donald Trump plans to announce the most ambitious tax reform plan since the Reagan era in the next few weeks, the White House said.
On Thursday, sending stock prices and the dollar higher on hopes leading to a cut in corporate tax rates.

French Elections - Investors are concerned about the strong showing in the French presidential race of far-right candidate Marine Le Pen, who has promised to take France out of the euro zone and to hold a referendum on European Union membership.

Gold held near 3-month highs on Thursday as political risks from elections in Europe and worries over U.S. President Donald Trump's policies buoyed safe haven demand for the bullion.

While gold was stabilised by Friday. It was still amongst the favourites for investors. Many of them are being bullish for gold – Reasons being :

Controversy over U.S. President Donald Trump's temporary travel ban on people from seven Muslim-majority countries has recently boosted gold as a safe-haven asset.

Further geo-political uncertainties, increasing hostilities in the Ukraine, Greek bailouts, French elections, Iran-U.S. sabre-rattling have supported gold prices and drawn interest from investors who seek support in safe haven assets.

Investors' bullish stance on gold is reinforced by an increase in net longs by speculators and a rise in holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. (SPDR holdings rose 0.68 percent to 832.58 tonnes on Wednesday from Tuesday, rising for a sixth straight session.)

Increasing uncertainties has increased the demand for gold as a hedge. Amidst all this, gold prices are expected to rise till Mid Feb. Once January CPI data is released, it will give an idea about the possibility of a rate hike in March which will then be a deciding factor in the movement of gold prices.

Friday, 3 February 2017

From the previous budget to this year’s- Gold witnessed some key events in the domestic market.

They varied from politics to economic to geopolitical. Namely-

Demonetisation

Prime Minister Narendra Modi made the surprise announcement on 8th November 2016 that the 500 and 1000 Rupees are just “worthless piece of paper”. The 500 and 1000 Rupees notes have been banned to fight back money and money-laundering. The new 2000 and 500 Rupees notes were released on 8th November 2016. The aftermath of demonetization, banks and ATM across the country faced severe cash shortages.

Goods and service bills passed

Goods and Services Tax bill were passed on 8 August 2016. GST is a proposed system of indirect taxation in India merging most of, the existing taxes into a single system of taxation. It would be a comprehensive indirect tax on the manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the state and central governments.

Surgical Strike Against Pakistan

The Indian said that it had conducted “Surgical Strikes against suspected militants in Pakistani-administered Kashmir on 29 September 2016. Lt Gen Ranbir Singh (DGMO) said that it had received “very credible and specific information” about “terrorist teams” who were preparing to “carry out infiltration and conduct terrorist strikes inside Jammu and Kashmir and in various metros in other states”. The Indian action was meant to pre-empt their infiltration.

But of the ones mentioned above gold was majorly affected in the year end by the announcement of demonetisation scheme.

Gold has been a beneficiary and even a victim of demonetisation. On a net basis, this demonetisation exercise as of now has been neutral for gold. As the demonetisation alarm bells rang, the rush to buy gold was almost immediate. As media reports suggest and also confirmed by gold import numbers, a lot of gold was sold on the night of November 8, as many rushed to buy gold with old notes. Post that, as the cash crunch hit the economy, there was a significant decline in discretionary spending including gold.

In many of our pre budget expectations over the past few years, we have always proposed to make the gold industry more organised. Fortunately, the demonetisation scheme, launching of a gold scheme and making PAN number compulsory for purchases of gold jewellery worth more than Rs 2 lakh shows the seriousness of government in making the making gold a commodity and thus channelizing it into a more organised way.These are signs of positive policy

After a neutral financial year for gold industry in India, all eyes were on the Finance Minister for the budget that was presented today- Feb 1st. This date marks the change in previous customary budget schedules which usually took place at around the end of February, usually February 28. The gold industry was hoping for a change from last few years of high import duties to a more reduced levy.

The industry was expecting a reduction in duty not onlyfor the interest of the dealers but also for the good of the common man.

However, there was no such announcement and duties have been unchanged. The budget is neutral for the gold industry and overall positive. On a scale of 1 to 10 I would rate this budget as 6.5.

Gold prices have been on the rise since January 28 and have gained Rs. 600 since then, added the Mr. Prithviraj Kothari, Managing Director, RSBL

Silver also crossed the Rs. 42,000 level by rising Rs. 300 to Rs. 42,200 per kg on increased off take by industrial units and coin makers.

Bullion traders said that besides a firm trend overseas, steady buying by local jewellers amid the ongoing wedding season mainly kept the precious metal prices higher.

Gold rose 0.59 per cent to $1,208.50 an ounce in Singapore today. The precious metal had risen by 1.25 per cent to $1,210.30 an ounce and silver went up by 2.75 per cent to $17.55 an ounce in New York yesterday, said a Bullion spectator.

In the national capital, gold of 99.9 and 99.5 per cent purity advanced by Rs. 200 each to Rs. 29,750 and Rs.29,600 per 10 grams respectively.

Sovereign, also went up by Rs. 100 to Rs. 24,400 per piece of eight grams.

In sync with gold, silver ready rose further by Rs. 300 to Rs. 42,200 per kg and weekly-based delivery by Rs.395 to Rs. 41,870 per kg.

On the other hand, silver coins remained steady at Rs. 72,000 for buying and Rs. 73,000 for selling of 100 pieces as per the statistics provided by RSBL.

Tuesday, 31 January 2017

Gold prices crawled higher on Monday on a weaker dollar and as uncertainty over US policy under President Donald Trump stoked safe-haven demand, although gains were curbed with many in Asia on holiday for the Lunar New Year, said Mr. Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Limited.

Spot gold had edged up 0.1 per cent to $1,191.98 per ounce by 0735 GMT, while US gold futures were up 0.24 per cent at $1,191.2.

Trump's administration on Sunday tempered a key element of his move to ban entry of refugees and people from seven Muslim-majority countries in the face of mounting criticism and protests in major American cities.

Some of Trump's statements and a lack of detail on policy have led some investors to opt for gold, often seen as an alternative investment in times of geopolitical and financial uncertainty.

The executive order signed by Trump has raised the uncertainty even higher.
The upturn in safe-haven buying comes at a time when physical demand has been sapped due to the Lunar New Year holiday in Asia, added Kothari.

The dollar index, which measures the greenback against a basket of currencies, was down 0.12 per cent at 100.410.

The market for the precious metal has also been buoyed by sluggish US economic data released on Friday.

Economic growth in the country slowed sharply in the fourth quarter as a plunge in shipments of soybeans weighed on exports, the data showed.

"That puts just enough doubt into the industry's mind about the timing of (US interest) rate hikes," Hynes said.

Meanwhile, holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD, remained unchanged on Thursday from Wednesday.

Speculators crimped their net long position in gold futures and options, following two straight weeks of increases, data showed. They also raised their silver holdings to the highest since early November.

Spot silver was up 0.23 per cent at $17.16 per ounce.

Platinum shed 0.14 per cent to $980.75 per ounce, while palladium dropped 0.5 per cent to $732.4 per ounce. Palladium touched its lowest since Jan. 4 at $708.97 an ounce in the previous session.

Monday, 1 August 2016

Precious
metals price rise is eminent and it ended the week on a positive note post poor
US data released. The negative data sent the dollar tumbling, stimulating a good
recovery for the yellow metal and its white counterparts.

Data released from the US was as
follows:

GDP data out of the U.S. disappointed on Friday, growing at a
seasonally and inflation adjusted +1.2% during Q2 (exp: +2.5%) as business
inventories contracted for the first time since Q3 2011

The University of Michigan’s consumer sentiment index dropped
to 90.0 in July (exp: 90.2) from 93.5 in June as both current and future
conditions declined.

The poor data countered the Fed’s statement that the US
economy is stable and the near-term outlook is positive. Even though the
unemployment rate is around five percent, the policy-board has been ineffective
at spurring inflation or consistent wage growth. All eyes were on this meeting
as something crucial was expected to happen regarding the interest rate hike.
But negative data has postponed this hike and this gave gold the push.

Apart
from the US there was news that came in from other economies which affected the gold price:

U.S Dollar:

Major
downturn in the dollar created by the release of second quarter US GDP where it
plummeted to 95.38 around the lowest mark since mid-June, before staging a
modest uptick to 95.60.

Japan:

Host
of new data releases and a Bank of Japan decision to inject further stimulus,
markets were directionless this week with volatility and volumes continuing to
drift lower. The Bank of Japan (BoJ) decided to adopt a minor adjustment to the
existing monetary policy by increasing its purchases of exchange-traded stock
funds to 6 trillion yen and expanded its dollar lending programme to $24
billion but kept its policy rate unchanged at -0.1 percent while maintaining
the pace of government bond purchases.

The
BOJ certainly doubled purchases of exchange-traded funds (ETFs) and said it
will “conduct a thorough assessment of the effects of negative interest rates
and its massive asset-buying program in September.”

The
bank was considering a $265 billion package, part of which would target
low-income citizens in another attempt to boost inflation and weak wage growth.

This
can be understood as- either the central bank may feel that Japan’s economic
growth needs very, very extensive stimulation and they have yet to formulate an
appropriate plan or it can be interested that they want to see how the chips
fall in eight weeks and move cautiously from there.

India:

Coming
to the domestic markets- India being one of the largest consumers of gold, but
currently the demand for gold isn’t intense. Frankly speaking, very few people
want to invest in gold at this price. Buyers, it seems, feel that the current
price is not sustainable and hence, they wait for a correction. Gold price in
India is governed by two major factors: global economic conditions and the
movement of rupee against the dollar. Both factors have contributed to the
current price rise. While global economic conditions continue to pose a greater
risk by the day following fluctuating recovery trend in the United States,
Britain’s exit from the European Union (BREXIT) and other geopolitical
tensions. On the other hand, Indian rupee has depreciated against the greenback
despite reports of good inflow of dollars.

Since
BREXIT, spot gold price jumped rapidly but, stayed elevated. Also, rainy season
is considered as a lean period for gold purchase due to the lack of festivals,
weddings or any other occasions during this season. Also, consumers have faced
two subsequent years of deficient monsoon rainfalls. Although, the current year
has seen normal rainfalls yet its distribution continues to remain uneven.
Also, the crucial rainfall month – August – is yet to come. So, let’s keep our
fingers crossed for the Kharif sowing and harvesting this year. In case of
normal monsoon and its even distribution, Kharif crop would bring some cheers
for farmers with higher output which would translate proportionate increase in
gold demand.

In
India, therefore, standard gold is available at Rs. 31,300 per 10 grams approx.
Gold price may touch $1400 in near future in the international markets which
will translate in rupee term at Rs. 32,500 per 10 grams. While the uptrend
continues there could be some profit booking.

Monday, 25 July 2016

BREXIT, FED,
Dollar and many other key influential factors have proved to be beneficial for
Gold and Silver prices in 2016. Last week too we saw many such factors influencing
bullion prices but in the downward side. Let’s take a close look on the key highlights:

The S&P (US Stock exchange) posted a fresh all-time closing
high and the major U.S. stock averages 2,163.24 locked in a fourth
successive winning week following the Brexit vote.

At the weekends G20 summit in China, the world's biggest
economies noted they will work to support global growth and share the
benefits of trade, in a meeting dominated by the impact of Britain's exit
from Europe and fears of rising protectionism. Philip Hammond, Britain's
new finance minister, said the uncertainty about Brexit would begin to
abate once Britain laid out a vision for a future relationship with
Europe, which could become clearer later this year.

On Thursday, 21st July , in Frankfurt, the European
Central Bank (ECB) and President Mario Draghi decided to leave rates
unchanged after the Brexit-induced market shockwaves have faded
somewhat. Draghi and his fellow central bankers gave no indication
that the current 1.7 trillion-euro quantitative-easing plan needed to be
increased following the UK vote to leave the single market. The council
doesn’t meet again till September, but investors aren’t anticipating any
adjustment to the bond-buying programme in the near-term thus leaving the
door open to more policy stimulus, highlighting "great" uncertainty
and abundant risks to the economic outlook.

Though bullion has
benefited from the loose policy decisions coming in from central banks of Europe and Japan, but on the other side the dollar has
gained on strong U.S. data, boosting bets the Fed will raise U.S. rates by
year-end.

Globally, gold nearly
fell to $1,312 and silver to USD 19.46. Traders attributed the fall in gold
prices to a weak global trend where the precious metal headed for its first
back-to-back weekly decline since May as gains in equities and the dollar ate
into demand for the metal as a storage value. Few other important indicators
that contributed to the downfall:

Data released from the U.S. showed that U.S home resale’s hit
their highest in nearly 9 and a half years in June as low interest rates
lured first-time buyers into the market and the number of Americans filing
for unemployment benefits fell last week, underscoring the economy's
strength.

Adding to the down trend in prices were the figures released by
SPDR. Holdings of SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, fell 0.22 percent to 963.14 tonnes on Thursday.

I do feel that the
Price action will likely be skewed to the downside and expect to test the
post-Brexit low around USD $1,305 and below this USD $1,300 should global
equities continue their upward trajectory.

The Jackson Hole Symposium Aug. 25-27, where
Yellen is scheduled to speak is where we will most likely get more relevant
information about coming Fed policy and the next direction.

Wednesday, 20 July 2016

While financial uncertainties were
influencing gold prices, we have lately seen geo political uncertainties giving
the yellow metal's safe haven appeal a further support if not permanent a
temporary one. The failed military coup
in Turkey did manage to shake the markets.

Spot gold prices turned higher,
reversing earlier losses in late trade on Friday in New York after Turkish
Prime Minister Binali Yildirim said a group within the country's military has
attempted to overthrow the government. For several hours overnight on Friday
violence shook Turkey's two main cities, as the armed faction which tried to
seize power blocked a bridge in Istanbul and strafed the headquarters of Turkish
intelligence and parliament in Ankara. But the coup attempt crumbled as Erdogan
rushed back to Istanbul from a Mediterranean holiday and urged people to take
to the streets to support his government against plotters he accused of trying
to kill him. The government declared the situation under control, saying 2,839
people had been rounded up, from foot soldiers to senior officers, including
those who formed "the backbone" of the rebellion.

Earlier on Thursday, spot gold price
crashed down to a two-week low of $1,320.45 after the Bank of England’s (BOE),
contrary to expectations, kept interest rates unchanged in its Thursday
meeting. In a somewhat surprising move, the Bank of England (BoE) decided to
keep rates steady despite fear over the health of the UK economy following the
Brexit vote.

Holdings in Global Gold ETF’s rose on
Friday but lost about 10 tons in total over the week to 2002 tons, which was
the biggest decline since March/April this year.

Gold continues to trade range bound
between USD $1,320 - $1,340, however participants are still looking to play on
the long side and we are likely to see moves lower well supported.

I largely see the spot gold price
supported at the $1,300 level due to a post-Brexit global economic uncertainty
and possibly lower US interest rates and given this critical situation at
Turkey, precious metals prices are expected to move higher as they have always
been influenced by geopolitical uncertainties.

Monday, 11 July 2016

Gold
has once again proved its worth and claims to be the best performing asset of
2016, emerging from a three-year bear market. The yellow metal has gained
almost 26% since 1 January, the best half-year performance since 1980,
Bloomberg data showed. Silver, following gold, rose 30% in the first six
months, leaving other assets such as the US and German bonds, Japanese yen and
the US dollar far behind.

The
flight to safe haven assets triggered by global political and economic
uncertainty has made bullion the year’s most preferred investment, with gold
and silver beating other asset classes by a mile.

The
past four sessions following the Brexit vote saw gold prices spike about 6%,
while silver advanced about 5%. Gold has definitely benefited from the Brexit
incident, but there have been reasons more than one that this yellow metal has
once again has got into limelight.

Global
economic uncertainty, slower growth in China, accommodative monetary policy of
the major central banks and weakness in dollar earlier this year had prompted
investments into safe haven assets like gold and silver.

Global Uncertainty:

The market continues to benefit from safe-haven investment flows in the
wake of the UK vote to exit the EU, which has led to heightened uncertainty
over global economic prospects and increased risk aversion.

Dollar:

Strength in the US dollar was the major contributor to weakness in gold
and commodity prices for the past few years. However, increasing uncertainty
about economic and political developments, low-to-negative interest rate
environment as well as doubts over global economic recovery post the collapse
of Lehman Brothers in 2008 have led to demand for precious metals, analysts
said.

China:

Economic slowdown of the Chinese economy has raised questions over the
global growth and development. These concerns have put an upward pressure on
gold.

Monetary Policy:

The current economic backdrop, along with fading prospects of an
interest rate hike by the US Fed at least till December validates further march
of bullion on the upwards trajectory over medium-term.

Contradicting
these prospects, the Jobs report released pulled gold prices down but not
significantly. The report stated that in June, 287,000 Americans entered the
labour market, far exceeding expectations of 174,000 while average hourly
earnings period ticked up 0.1 percent, below the forecast 0.2 percent.

Still,
the unemployment rate rose to 4.9 percent from 4.8 percent after the May figure
was revised down to 11,000 jobs from what was already a multi-year low of
38,000. The June employment figure had gained greater significance following
the disappointing May report, which suggested the US recovery was beginning to
slow after seven years of expansion.

It
was a session marked by extreme volatility on Friday with gold experiencing a
$35 range and silver $1.00, with NFP's driving price action. The prices send a
solid signal for the Gold price to move beyond $1400 in short to medium term.

Further
supporting gold was the Chinese gold reserves figures. It stated that China's
gold reserves stood at 58.62 million fine troy ounces at the end of June, up
from 58.14 million at the end of May, the central bank said on Thursday. Such a
stock up already appears to be in motion for the gold stocks.

Given
these supporting factors for safe haven metals, investors have engaged
themselves into purchases of gold and silver and this is further giving and
upward thrust to precious metals.

Tuesday, 5 July 2016

On announcement
of BREXIT, the markets panicked and this was reflected in the movements of gold
prices. Initially gold prices soared and were at fresh highs of past few years.
Once markets settled, gold did see some correction but then there were signs of
a modest pick-up in risk appetite leading to further rise in gold prices. Once
again gold was considered as a saviour in times of uncertainties and it
regained its safe haven appeal with current prices at US$1,350.

But what
surprised the market were the movement in prices of the white metal: Silver.

Silver jumped to
the highest level since September 2014 as investors speculated central banks
will need to continue support the global economy in the wake of Britain’s vote
to quit the European Union. Governor Mark Carney said on Thursday the Bank of
England could cut interest rates within months as it tries to shield an
unstable UK economy.

The price of
silver climbed 26% through the first four months of 2016. That not only beat
gold prices by 7.5%, but it also bettered the Dow Jones Industrial Average and
S&P 500 by 24% and 25%, respectively. Silver prices had surged to a high of
$20.46 (a near two year high) and currently trading at $19.80.

Silver Price rise_RSBL SPOT Terminal

Apart from
BREXIT, the Caixiin Chinese manufacturing purchasing managers index (PMI)
released on Friday continued to raise concerns about China’s
weaker-than-expected economic recovery with the Chinese manufacturing PMI for
June read 48.6, which was below forecast of 49.1 and May’s number of 49.2. It
was the index’s third monthly decline in a row and marked the steepest
deterioration in manufacturing conditions since February.

Not only the
above news item, but Silver’s bullish stance can be supported by the below
given key points:

Lower Gold/Silver ratio. The current ratio stands around 75 much
lower than the peak of around 84 in March. Over the same time the Silver prices
have gone up by nearly 11 off percent.

Prospects for further US interest-rate increases have been wound
back since the BREXIT vote. Commodity prices in US usually benefit from lower interest
rates.

Silver plays a key role in Photovoltaic (PV) cells that are being
used in Solar panels. World economies around the globe are jumping on clean
energy bandwagon to reduce the pollution levels and solar energy plays an
important role. With an avid increase in solar energy contribution, Silver
demand will increase exponentially.

India is one of the key importers of Silver over the past few years
and the demand has only been increasing in the wake of lower prices till Jan,
2016.

Silver prices
still have room for further movement upwards and the current panic and fear in
the markets could raise these prices further. Gold may have a room to correct
till $1,280 – 1,300 in short term but the political and unknown economic conditions
created by BREXIT, could raise prices further for precious metals.